Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.18 12/ 20/ 2022

C h a i r m a n ’ s

C o l u m nMore in-person meetings with ourOverseas clientsAs Covid has begun to settle down, we are receiving
more foreign visitors. Our firm, known for fundadministration has noticed a pickup in global real estate
funds seeking our assistance and in-person meetings
are more common now. It may be in response toborder restrictions easing and visitors all coming here atonce. Compared to Japan, I feel that other countries
are much swifter with their action. Since the Fall 2022,people from Canada, Singapore, Netherlands, and Hong
Kong have visited us.
Raffles Place Singapore (photo: Ramer Borgia)

Meanwhile, I visited Singapore at the end of November
for the first time in 3 years. Immigration procedures
have also changed, with the smartphone app, Visit
Japan Web allowing vaccination certificates to beshown for smooth immigration clearance (although it
takes some time for initial registration). At Haneda
Airport, the facial recognition system can be registeredfor even simpler entry. Digitalization has certainly
picked up these past 2 to 3 years but just make sure notto lose your phone.
It’s been a while since I last visited our clients inSingapore. Outside of public transportation, no one hadmasks on and it was a pleasure to actually see people’s
faces. Since many of our clients are global investors,
the focus seems to be on Singapore’s role as aninvestment hub that allocates capital to other Asian
countries and determines asset types and financial
performance expectations.

Many often say that Japan’s investment structures andtaxes are complicated. In those conversations, it wasalso eye-opening that Japan’s presence within the realmof real estate investments is not as big as expected. Thismay be due to high economic growth of other countries
relative to Japan. However, the one constant is that ourfirm will continue to assist our clients with the utmost
care and professional service.

Another reason I visited Singapore was to celebrate the10th anniversary of our Singapore office, established in2011, which coincides with the year of the Great EastJapan Earthquake. Including members of our Philippine
accounting center, the office has 70 employees andprovides tax, accounting, and inbound support forJapanese funds. It’s located in Raffles Place, so for thosevisiting Singapore, please pay us a visit.
by Kazuhiro Matsuzawa, Chairman

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.18 12/ 20/ 2022

R e n e w a b l e

E n e r g y

How the Real Estate Industry isimplementing Renewable Energy
Along with the rise of RE100 member firms, carbon
neutrality and the use of renewable energy is becoming
more prevalent with companies. The real estateindustry is no different with firms implementing
renewable energy at a greater rate.
For example, a large asset management firm has
implemented RE for hotels operated within the city, andby 2025, its REIT will use renewable energy in all of its
properties through agreement with several hundred
solar power generators under the FIP system. Other
real estate firms are also becoming active, with focus on
long-term procurement of renewable energy.
FIP differs from the fixed purchase price under the FITsystem. Instead, a premium (subsidy) is added to theprice in the wholesale market, which leads tofluctuation in purchase price. Additionally, under theFIP system, instead of going through the wholesale
electricity market, a company can directly contract andpurchase from an electricity supplier (energy company).
After purchasing from a supplier, the firm can thenresell electricity to another party.
Our firm is now servicing more SPCs that become
power plant operators by acquiring power generation
facilities operated under the FIP system andsubsequently becoming offsite PPA operators.

In an offsite PPA structure, the SPC is the powergenerator (PPA operator) and forms long-term
contracts with electricity buyers under a PPA. Forbuyers, utilizing a PPA operator’s offsite solar power
generation provides far greater capacity than a firm’s
own onsite solar power. Additionally, by forming direct
agreements with PPA operators, the company canminimize impact of energy price hikes in the market.
Securitization structures for renewable energy are
becoming more varied as well. It is certainly worth
paying close attention to how renewable energy
operators using the FIP system evolve over time. Forour clients that have interest in investing in such
facilities, we can provide solutions tailored to yourneeds. Please reach out to us at any time.
by Kenichi Shimizu, Corporate Officer

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.18 12/ 20/ 2022

J a p a n

R e a lE s t a t e

Market conditions for Real EstateFunds
We look at the “Market report for Private Real Estate
Funds (as of June 31, 2022)” conducted by ARES
(Association for Real Estate Securitization) and SMTRI(Sumitomo Mitsui Trust Research Institute). I’d like tosummarize some of the interesting results reported.
Previously, I mentioned the declining purchasing
power of public REITs. The report backs myunderstanding with half-year investments dropping to
300 billion yen from previous increases of 600 billion
yen. I speculate that it’s become difficult to purchase as
an outside investor and that the main investments
made are sponsor-led.
Additionally, although the weak yen has seemingly
ushered in investments by foreign funds, the data saysotherwise. Private fund (global) investments are downby 200 billion yen through mid-year. Unlike REITs,
investment periods are fixed for private funds, so unlessacquisitions are continually made, total investment
assets will begin to fall. Several reasons may becontributing to why sufficient acquisitions haven’t beenmade. One is that despite the interest of foreign
investors, there aren’t enough available properties.
Another may be that rising competition has madeinvestment criteria harder to meet.
On the contrary, private fund (domestic) investments
have grown tremendously. Previously, half-year
investments were growing by 700 billion yen but in themost recent 6 months, it’s up to 2.2 trillion yen. It’s
become the main form of fund investments. Logistics
and residential continue to be the primary property
types being invested in, but investor interest seems to
be recovering for hotels in a post-Covid market.

Market size of REITs and Private funds(Blue = Public REIT, Orange = Private REIT,
Grey = Private fund (domestic), Yellow = Private fund (global))Picking up the slack for public REITs are private REITs. 6month investments of 250 billion yen have doubled to500 billion yen in the most recent period, substantially
offsetting the decrease for Public REITs. Assetmanagement firms seemed to have shifted theirinvestments from public to private REITs.

I will update you again for the December-end report.
by Shigeru Hirai, Client Relations Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.18 12/ 20/ 2022

N e wT r e n d s

How software is changing industry
landscapes

Real Estate• STO (security token offerings) based on blockchain
are giving investors another avenue to invest in realestate, giving them access to certain asset types andmore transparency. See p.2 our newsletter• PropTech companies like Zillow provide a robust
platform for homebuyers and sellers giving themaccess to neighboring home prices, aerial views, andsales history.
• Building management systems centralize andoptimize HVAC, lighting, and security systems.

In October, I went to Los Angeles to see family andfriends. During an Uber ride from the beachside townof Santa Monica, I noticed a white vehicle zooming past
me with unusual devices all over. It was an autonomousvehicle developed by Waymo, a subsidiary of Alphabet
Inc. (Google).

It seems that the top companies are making substantial
investments in software and platforms or utilizing themto fight for market share. This has obviously continued
since the advent of the internet, but perhaps more
pronounced now that new technology is here. It
certainly feels like an arms race.
There is however a clear shortage of softwaredevelopers that needs to be addressed for firms tomove ahead.
by Yuichi Totani, Client Relations Group

This is just one visible example of how AI, machinelearning, and other computer programs are changing
the way humans live and work. For financialtransactions and business processes, this is no different.
Here are some ways industries related to ASA are
implementing technology for efficiency gains, accuracy,and transparency.
Accounting firms• Auditors are using RPA (robotic process automation)
for automating internal document formats. In thefuture, there may be far-reaching applications of AI
and OCR for reviewing contracts, financial accounts,and disclosures.
• Cloud-based tax preparation like CCH Accesscentralizes client uploads and form preparation.

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.18 12/ 20/ 2022
J a p a nTa x

U p d a t e

Invoice system – How much pricediscount should tax-exempt
businesses provide?
As the start of the Invoice system approaches next
October, there are several additional relief measuresthat are expected to be added. One is that tax due will
be capped at 20% of c-tax on sales for previously taxexempt businesses turned new taxpayers. The other isthat invoices may be unnecessary for SME transactions
less than 10,000 yen. Here we take a look at how
current relief measures will affect transactions after thenew system takes effect.
Under current relief measures, from the start of thesystem through September 30, 2026, 80% of purchasetax credits from taxable purchases from tax-exempt
businesses will be allowable deductions. The remaining
20% will be treated as “part of the compensation
amount for the transaction”.
The following example compares journal entries for thebuyer of a product costing 10,000 yen (with 10% c-tax).

【Pre-Invoice system (Current)】
Price of taxable purchase 10,000 yen / Cash 11,000 yen
Prepaid consumption tax 1,000【After implementation of invoice system (October 1,2023 to September 30, 2026)】
Price of taxable purchase 10,200 yen / Cash 11,000 yen
Prepaid consumption tax 800 yen

If the buyer is a taxpayer that can deduct 100% oftaxable purchases, from a consumption tax perspective,in addition to purchase price of 11,000 yen, there will
be a 200 yen decrease in allowable tax deduction,
which results in additional tax burden. Assuming the200 yen was discounted, the journal entry is as follows:
Price of taxable purchase 10,015 yen / Cash 10,800 yen
Prepaid consumption tax 785 yen(10% tax rate: 981 yen)In the transaction above, the buyer’s burden will
actually be 10,966 yen, and is lower than the purchaseprice before the new system of 11,000 yen.
※Purchase price 10,800 yen + burden of decreased tax
deduction (981yen – 785 yen)So, for this transaction, what discount amount will
result in an equivalent purchase price for the buyer
before and after the new system? Theoretically, ifdiscounted by 196 yen, for a purchase price of 10,804
yen, the buyer’s burden will substantially be 11,000 yen
before and after the new system.
Japan’s consumption tax system is getting even more
complicated and confusing. We certainly hope thateventually a far simpler method is implemented.
by Yasuhiro Ando, Tax Consulting Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.